Bell: Settle or be sued

Monday

Apr 1, 2013 at 5:22 PM

Those who profited from the Lexington-based alleged Ponzi scheme, Zeek Rewards, have until May 31 to pursue a settlement. After that, they will be subject to legal action, according to an online letter posted by the case's court-appointed receiver Monday.

BY NASH DUNNThe Dispatch

Those who profited from the Lexington-based alleged Ponzi scheme, Zeek Rewards, have until May 31 to pursue a settlement. After that, they will be subject to legal action, according to an online letter posted by the case's court-appointed receiver Monday.Receiver Kenneth Bell, a partner at McGuireWoods in Charlotte, again encouraged the program's net winners to contact his team and discuss settlements of their claims. He said his team will be available for at least 60 more days."After (May 31), I will assume that all net winners that want to avoid the legal process by discussing settlement have done so, and I will move forward with court action, likely in June 2013, against the remaining net winners," Bell said in the letter.Bell estimates that close to $300 million was "fraudulently transferred" to nearly 80,000 Zeek Rewards users. Some of the largest winners made more than $1 million, according to court documents.Many more, close to 840,000 users, lost money in the alleged scheme, which encouraged the recruitment of new members, or affiliates, to promote the related penny auction site, Zeekler.com.The U.S. Securities and Exchange Commission shut down Zeek Rewards, Zeekler.com and parent company Rex Venture Group in August 2012. In addition to filing securities fraud charges and freezing Zeek's assets, the SEC claimed the operation was a huge Ponzi scheme on the verge of collapse.Launching in 2011, Zeek Rewards was one of the first penny auction-based companies to present profit-sharing opportunities to its customers. Its affiliates bought in by purchasing large quantities of bids from Zeekler.com to give away to new customers using the penny auction website. Affiliates were also required to post a daily advertisement online. For buying bids and placing an ad, affiliates shared in the company's daily net profits through "rewards" — bonuses they could compile over time and eventually turn into cash.In reality, the SEC alleges, new investors were just funding the payouts for higher-up affiliates. About 98 percent of Zeek Rewards total revenues, and subsequent payouts to its affiliates, were comprised of funds received from new investors, according to the SEC's complaint filed in federal court in Charlotte in August.Bell said in the simplest terms, net winners should seek settlements because it's the right thing to do."The people who took more money out than they put in actually have the money of the people who put more in than they took out," Bell told The Dispatch. "Our court-appointed mission is to make people as whole as possible."Bell said quite a few people have expressed an interest in reaching settlements and his team has entered into settlement agreements with some.The amounts of the settlements have ranged from about 40 percent to 80 percent of the affiliate's net winnings, according to Bell's letter. However, not all net winners have been or will be offered discounted settlements and amounts may vary, the letter said."The amount of the settlement offered to each net winner will be based on the affiliate's particular circumstances and ultimately must — in both my and the Court's opinion — be in the overall best interests of the victims, considering the costs associated with the legal process," according to the letter.Bell submitted a proposed claims process for victims to the Courts last week. He said he would not expect the court to approve it until early April.The claims process will be open for 120 days, which will have to then be evaluated for legitimacy and accuracy. After that, Bell said he hopes to make an interim distribution to victims."We're well into the fall until we'd have court permission to have that," Bell said.The receivership team has collected about $300 million so far, mostly from financial institutions and outstanding cashier's checks cut to Zeek.The final distribution will take place after all recoverable assets are recovered, including money from potential claw back litigation."Once you get involved in litigation, things move slowly," Bell said. "We will move as quickly as possible. Litigation always takes a long time."Nash Dunn can be reached at 249-3981, ext. 227, or at nash.dunn@the-dispatch.com.